The Importance of Intellectual Property

All businesses understand the importance of tangible assets, and have done so now for many years. However, in the recession focusing too strongly and over emphasizing your tangible assets can lead to liquidity issues and may cause further problems with cash management. Especially as organisations have now realised that the shelf life of products (assets) and technology have shortened significantly due to an ever increasing competitive market. Further to this, it can now be strongly identified that the true value of an organisation doesn’t lie within its tangible assets, and understating and estimating the importance of these can both hinder and prevent an organisation from realising its true potential. For example, the brand power of Apple and Nike allow them to charge premiums for their products and services. This brand image and brand power in its most simplistic form is an intangible asset.

The executive summary of the influential 2006 Gowers Review of Intellectual Property characterised the situation in the following way: The increasing importance of knowledge capital is seen in its contribution to the value of firms. In 1984 the top ten firms listed on the London Stock Exchange had a combined market value of £40 billion and net assets of the same value. Advance twenty years and the asset stock of the largest firms has doubled while their market value has increased nearly ten times. The difference in value is accounted for by intangible assets: goodwill, reputation and, most importantly, knowledge capital…. Innovative ideas create value, whether they are improved products, new brands or creative expressions. As a result, IP rights – the means by which these assets are owned – have become a cornerstone of economic activity.

In some sectors and areas it may be easier to identify these intangible assets, however it is surprising to most that intangible assets are evident in all organisations; whether it is a service or product centred organisation that you operate in, you are clearly going to own some of these assets. It is these intangible assets that make your organisation unique and valuable, therefore it is important to understand their true value and how they could help you in many different ways. Inngot have done a lot of the hard work for you and we currently have a large database of all sectors and areas that your intellectual property/ intangible assets may lay.

The Terminology/ Jargon of Intellectual Property and Intangible Assets

The broadest term, as used above, is knowledge capital or intellectual capital. This is a “catch-all” phrase generally used to describe all the knowledge-based resources that companies can access and use – including your staff and their skills.

For the purposes of delivering and realising value, the most important set of intangible assets are likely to be your intellectual assets. These are identifiable things that a company can say it owns: they range from written contracts to the know-how embodied in products (including trade secrets).

Intellectual property (IP), probably the most familiar term, is a subset of your intellectual assets. In the UK IP falls into four categories: patents, trade marks, registered designs and copyright. The first three types need to be formally registered in order to be fully effective, while copyright is automatic.

Now that we have all of the jargon and terminology out of the way, it is important to understand how interconnected these elements are to your organisation. This will be important when you come to identify, value and promote your innovations as sometimes it can be difficult to separate intellectual property from the core operations of your organisation.

We’ve used a scotch egg to illustrate how they fit together and with which they affect or operate within your organisation.

You may find this quite a helpful analogy, as there’s a tendency to concentrate on the yolk – to the exclusion of the rest. If you own IP that’s been formally registered, then you will at least have some records of these assets (though many businesses which own IP have no clear plan of how they will extract value from it). When it comes to the broader family of intellectual assets, however, many are never distinguished from the general trading activities of a business, and are therefore untapped.